TDS Compliance in September 2026: Important Checks for Businesses

Tax Deducted at Source (TDS) is an important part of tax compliance for businesses making payments such as salaries, professional fees, contractor payments, rent, commission, interest and other specified payments.

September is a useful month for businesses to review their TDS records, ensure that monthly deductions and payments are properly accounted for, and start preparing for the July–September quarterly TDS statement.

For FY 2026-27, businesses also need to be mindful of the transition to the Income Tax Act, 2025, which applies to payments or credits arising on or after 1 April 2026. The Income Tax Department has clarified that the applicable law depends on the earlier of the date of credit or payment.

This guide covers the key TDS compliance checks businesses should perform in September 2026.

Why TDS Compliance Is Important

TDS compliance involves more than deducting tax from a payment.

A business may need to:

• Identify whether TDS is applicable
• Determine the correct provision
• Calculate the correct amount of TDS
• Deduct TDS at the appropriate time
• Deposit the tax within the prescribed timeline
• Report the deduction in the relevant quarterly statement
• Correct errors, if any
• Issue applicable TDS certificates
• Reconcile TDS with books and tax records

Failure to comply can result in interest, fees, penalties and other consequences depending on the nature of the default. The Income Tax Department notes that failure to deduct or deposit TDS can lead to recovery, interest and other consequences.

1. Review All Payments Made During September

The first step is to review payments and amounts credited during September.

Businesses should identify transactions such as:

• Salary
• Professional fees
• Contractor payments
• Commission or brokerage
• Rent
• Interest
• Technical/service-related payments
• Other specified payments subject to TDS

Remember that TDS applicability can depend on the nature of the payment and the applicable provisions.

Maintain a monthly TDS working sheet so that no applicable transaction is missed.

2. Check the Correct TDS Provision

One of the common TDS mistakes is applying the wrong provision to a payment.

Businesses should review the nature of every applicable payment and ensure that the relevant provision under the Income Tax Act, 2025 is correctly identified for transactions from 1 April 2026 onwards.

The Income Tax Department has specifically clarified that TDS obligations for payments or credits from 1 April 2026 are governed by the new Act, while transactions where the earlier event occurred on or before 31 March 2026 remain governed by the earlier Act.

3. Verify PAN of Deductees

Before finalising TDS calculations, businesses should verify the PAN details of vendors, professionals, employees and other deductees wherever applicable.

Incorrect PAN information can create problems in:

• TDS reporting
• TDS certificates
• Form 26AS/AIS reflection
• Reconciliation
• Deductee records

Maintain updated vendor and employee master data.

4. Check TDS Deduction on Time

TDS should be deducted at the applicable stage prescribed for the particular payment.

Businesses should compare:

Invoice/Payment Date → Credit Date → TDS Deduction Date

The Income Tax Department's current guidance continues the basic principle that TDS obligations are linked to the applicable credit/payment event, depending on the nature of the payment.

5. Review TDS Deposit

After deduction, businesses must ensure that the TDS is deposited with the Government within the prescribed timeline.

The Income Tax Department states that the general rule continues to require TDS to be deposited by the 7th of the following month, subject to specific exceptions.

Therefore, in September businesses should check whether TDS deducted during the previous month has been deposited correctly and whether the September deductions are being tracked for the next payment deadline.

Maintain a simple tracker:

6. Reconcile TDS With the Books of Accounts

TDS records should match the accounting records.

Businesses should reconcile:

Books of Accounts ↔ TDS Working ↔ Challans ↔ TDS Return

Check whether:

• TDS payable is correctly recorded
• Deduction entries are posted
• Challans are properly accounted for
• TDS liabilities are cleared
• No duplicate payment has been recorded
• Outstanding TDS balances are explained

Regular reconciliation can help identify errors before the quarterly TDS statement is filed.

7. Start Preparing for the July–September TDS Return

September marks the end of the second quarter of FY 2026-27.

Businesses should therefore start preparing their July–September quarterly TDS statement rather than waiting until October.

The Income Tax Department currently provides quarterly due dates of 31 October for the July–September quarter for relevant TDS statements.

For example:

• Salary TDS → Form 138, earlier Form 24Q
• Resident non-salary TDS → Form 140, earlier Form 26Q
• Certain non-resident payments → Form 144, earlier Form 27Q

The Income Tax Department's current form manuals identify these new form numbers and their quarterly filing schedule.

8. Check Salary TDS

Employers should review salary TDS calculations for September.

Check:

• Employee salary
• Taxable components
• Applicable exemptions/deductions
• Tax regime selected by employee
• TDS already deducted
• Remaining estimated tax liability

For Tax Year 2026-27, the Income Tax Department states that employers should reset salary TDS computation from 1 April 2026 under the Income Tax Act, 2025.

Payroll systems should also be updated to reflect the new Act's section numbering and terminology.

9. Review TDS on Professional and Contract Payments

Businesses should review payments to:

• Chartered Accountants
• Lawyers
• Consultants
• IT professionals
• Marketing agencies
• Contractors
• Freelancers
• Other service providers

Check whether TDS is applicable based on the nature of the payment and applicable threshold/provisions.

Do not rely only on the vendor's invoice description. Review the actual nature of the transaction.

10. Check Rent-Related TDS

Businesses making rent payments should review applicable TDS requirements.

Check:

• Landlord/payee details
• Nature of property
• Monthly/annual rent
• Payment/credit date
• TDS deducted
• TDS deposited
• Reporting in the applicable statement

Special challan-cum-statement provisions may apply to certain specified rent payments. For transactions covered by the new Act from 1 April 2026, the Income Tax Department states that the common Form 141 is used for specified challan-cum-TDS statement transactions.

11. Check TDS on Non-Resident Payments

If a business makes payments to non-residents, additional review may be required.

Businesses should examine:

• Nature of payment
• Residential status
• Applicable TDS provision
• Tax treaty considerations, where relevant
• PAN/documentation
• TDS rate
• Reporting requirements

Non-resident TDS reporting has a separate quarterly statement, currently identified by the Income Tax Department as Form 144, earlier Form 27Q.

12. Reconcile TDS Challans

Every TDS payment should be supported by the correct challan details.

Check:

• Challan identification number
• Payment date
• Amount
• Major/minor head where applicable
• TAN
• Assessment/Tax Year details
• Allocation against deductees

Incorrect challan details can create reconciliation issues in the TDS statement.

13. Check TDS Defaults

Businesses should periodically check whether there are any outstanding TDS defaults.

Review:

• Short deduction
• Short payment
• Late deduction
• Late payment
• Interest
• Late filing fee
• PAN-related errors
• Challan mismatch

Identifying a default early gives the business an opportunity to correct the issue before it affects subsequent reporting.

14. Check TDS Return Data Before Filing

Before submitting the quarterly TDS statement, compare the return data with the underlying records.

Check:

Deductee PAN + Payment Amount + TDS Amount + Deduction Date + Challan Details

A mismatch in any of these fields can affect the deductee's tax records and may require correction later.

15. Check TDS Certificates

Businesses should also maintain proper TDS certificate records.

For non-salary TDS, Form 16A is a quarterly TDS certificate containing details such as the amount credited, nature of payment and TDS deposited.

Maintain a record of certificates issued to deductees and ensure the reported information matches the TDS statement.

16. Reconcile TDS With Form 26AS and AIS

Businesses should also periodically review tax information available through the Income Tax e-filing system.

For deductees, TDS information can reflect in Form 26AS/AIS.

The Income Tax Department describes AIS as containing information including TDS/TCS, SFT information, tax payments, demand/refund and other reported information.

If a deductee reports a mismatch, the business should compare:

Books → TDS Return → Challan → Form 26AS/AIS

and identify the source of the difference.

17. Review Your Accounting and Payroll Software

The Income Tax Department has specifically advised that systems should be updated for the Income Tax Act, 2025, including new section numbering, terminology and reporting requirements.

Businesses should therefore check whether their:

• Accounting software
• Payroll software
• ERP
• TDS utility
• Vendor master
• Tax configuration

have been updated appropriately for 2026-27.

Common TDS Mistakes Businesses Should Avoid

❌ Applying the Wrong TDS Provision

Review the nature of the payment before selecting the applicable provision.

❌ Incorrect PAN

Verify PAN information before reporting the deductee.

❌ Late TDS Deposit

Track monthly deduction and payment deadlines.

❌ Incorrect TDS Amount

Check the applicable rate and threshold before deduction.

❌ Challan Mismatch

Reconcile challans with the accounting records.

❌ Ignoring Previous Defaults

Review outstanding TDS demands and defaults.

❌ Waiting Until October

Start preparing the July–September quarterly statement during September itself.

❌ Not Updating Software

Ensure accounting and payroll systems reflect the applicable 2026 requirements.

September 2026 TDS Compliance Checklist

Before closing September, businesses should review:

☑ All September payments/credits reviewed
☑ TDS applicability checked
☑ Correct provision identified
☑ Deductee PAN verified
☑ TDS calculated correctly
☑ Previous month's TDS deposited
☑ September TDS liability recorded
☑ TDS challans reconciled
☑ Books and TDS records matched
☑ TDS defaults checked
☑ Salary TDS reviewed
☑ Vendor/professional TDS reviewed
☑ Rent-related TDS checked, where applicable
☑ Non-resident payments reviewed, where applicable
☑ July–September quarterly TDS data prepared
☑ Accounting/payroll software updated
☑ TDS certificates tracked

How Businesses Can Make TDS Compliance Easier

A monthly TDS reconciliation process can reduce last-minute compliance work.

Step 1: Record

Maintain complete records of payments and credits.

Step 2: Identify

Determine which transactions are subject to TDS.

Step 3: Deduct

Calculate and deduct the appropriate amount.

Step 4: Deposit

Track TDS payment deadlines and challans.

Step 5: Reconcile

Match books, TDS workings and challans.

Step 6: Report

Prepare the applicable quarterly TDS statement.

Step 7: Correct

Identify and correct errors or defaults promptly.

September TDS Compliance: Key Takeaway

September is a good time for businesses to review their TDS compliance before the end of the July–September quarter.

Instead of waiting for the quarterly filing deadline, businesses should reconcile payments, TDS deductions, challans, books and deductee information in advance.

For FY 2026-27, businesses should also ensure that their accounting, payroll and TDS processes are aligned with the Income Tax Act, 2025 and the applicable 2026 rules.

A regular TDS reconciliation process can help businesses maintain accurate records and reduce avoidable compliance issues.